Royale Energy ROYL

Royale Energy, Inc. is an independent oil and natural gas producer engaged in the exploration, development, and production of oil and natural gas properties. The company's principal business activities include the acquisition of oil and gas lease interests and proved reserves, drilling of exploratory and development wells, and the sale of fractional working interests in wells to be drilled by Royale. Royale operates primarily in Mitchell County and Ector County, Texas, the Sacramento Basin and San Joaquin Basin in California, and in Oklahoma, with an overriding royalty interest in a non-producing well in Alaska.

Royale generates revenue primarily from the sale of oil and natural gas produced from its wells, which accounted for approximately 99% of its total revenue in 2025, amounting to $1,926,442. The company also recognizes gains from turnkey drilling contracts, where funds received from participants exceed the actual costs of drilling, testing, and completing wells, including costs incurred on behalf of participants and for its own account. In addition, Royale earns fees from operating wells it completes, receiving industry-standard overhead payments and expense reimbursements from owners of fractional interests in those wells.

The company operates through the following segments:

• Oil and Natural Gas Production: This segment encompasses the exploration, development, and production of crude oil and natural gas from properties owned or operated by Royale. Activities include acquiring lease interests, drilling wells, and selling the resulting hydrocarbons. The segment operates in Texas, California, and Oklahoma, focusing on both proved developed and undeveloped reserves. Royale sells a portion of the working interest in each well it drills to third-party investors while retaining an interest for its own account, allowing for risk diversification and shared development costs.
• Working Interest Sales and Turnkey Drilling: This segment involves the sale of fractional working interests in undeveloped wells to accredited investors, often structured as turnkey contracts where Royale agrees to drill wells for a fixed price. Under these arrangements, participants prepay for drilling and completion, and Royale may recognize a gain if total funds received exceed actual costs incurred. The company uses this model to finance drilling activities while maintaining an ownership stake in the wells. Royale typically offers investors in successful wells the right to participate in subsequent wells at the same percentage level as their initial investment.
• Well Operations and Fee Services: As operator of the wells it completes, Royale receives fees set in line with industry standards from owners of fractional interests in the wells, along with reimbursements for operating expenses. This segment includes the management and maintenance of producing wells in California and Texas, where Royale oversees production and reports operational expenditures. Overhead charges from well operations offset general and administrative expenses, contributing to the company's overall cost structure.

Royale Energy, Inc. operates as a small independent producer in a highly competitive oil and natural gas industry, competing with larger integrated and exploration companies for access to capital, drilling opportunities, and market share. The company differentiates itself through its business model of selling fractional working interests to reduce capital exposure and diversify risk across multiple drilling prospects. Its ability to structure turnkey drilling agreements and retain operational control of wells provides a competitive advantage in attracting investor participation while maintaining operational expertise and revenue streams from both production and service fees.

Royale sells its oil production from the operated Jameson property in Texas to Energy Transfer Crude Marketing LLC under a renewable evergreen contract based on West Texas Intermediate spot prices. Natural gas from the same property is sold pursuant to a long-term contract with WTG Jameson, L. P., based on Henry Hub spot gas prices. The company also sells most of its California natural gas production through Pacific Gas & Electric (PG&E) pipelines to independent customers on a monthly contract basis, with some gas delivered via privately owned pipelines. Production from the non-operated Pradera Fuego field is sold under contracts engaged by the operator, generally based on posted spot prices for the respective products.